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Household financial assets: FY22 sees fall in deposit growth, may pick up this year

Bank deposits of households rose by Rs 6.53 lakh crore during the year, down nearly 48 per cent from Rs 12.59 lakh crore in the previous year, as interest rates declined to decadal lows in the banking system, as per data from the Reserve Bank of India (RBI).

Although term deposit rates are still giving negative returns due to the high inflation level of 7 per cent, households are treading with caution in the stock market and MF investments as stock markets are highly volatile. Stock market returns are not expected to be great in the current year. (File)

The flow of financial assets of households witnessed a decline with bank deposits registering a fall in growth, even as their holdings in mutual funds, equity and small savings showed a significant rise during fiscal 2021-22.

Bank deposits of households rose by Rs 6.53 lakh crore during the year, down nearly 48 per cent from Rs 12.59 lakh crore in the previous year, as interest rates declined to decadal lows in the banking system, as per data from the Reserve Bank of India (RBI). The total financial assets of households too fell to 10.8 per cent of the GDP, down from 16 per cent in the previous year.

Significantly, investments of households in mutual funds (MFs) surged to Rs 1.60 lakh crore in FY22 from Rs 64,083 crore, the RBI data showed. Households were pumping more than Rs 10,000 crore into MFs through systematic investment plans (SIPs) every month. That was the period when stock markets bounced back after the Covid-induced lockdown was gradually lifted and the economy showed signs of revival.

Households’ direct investment in stock markets shot up by nearly 33 per cent to Rs 48,613 crore from Rs 38,531 crore. Their investment in small savings also rose to Rs 3.40 lakh crore from Rs 2.81 lakh crore previously.

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Overall, total financial assets of households were at Rs 221.04 lakh crore as of March 2022 as against Rs 201.68 lakh crore a year ago, as per the RBI data.
Indicating the growing preference for mutual funds, household investments in MF schemes shot up by 24.39 per cent as against the 9.59 per cent growth in bank deposits during FY22.

“The low interest rate regime post-Covid when the repo rate was reduced led to households moving their savings to mutual funds and stocks which gave higher returns. Further, households also include SMEs which had closed down and had little ability to save,” said Madan Sabnavis, chief economist, Bank of Baroda (BoB).
However, analysts are expecting flows to bank deposits to pick up in FY23 as deposit rates are expected to rise in the wake of the RBI decision to jack up repo
rate to 5.90 per cent from 4 per cent in FY22.

Although term deposit rates are still giving negative returns due to the high inflation level of 7 per cent, households are treading with caution in the stock market and MF investments as stock markets are highly volatile. Stock market returns are not expected to be great in the current year.

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While hiking lending rates, banks are going slow in jacking up deposit rates. BoB said, “Deposit rates are fairly sticky as in the first cycle, the term deposit rate greater than one year has only increased by 8 bps. In the next two cycles, it rose in the range of 15-17 bps. The same is likely to persist even with the current rate hike. Thus, transmission to lending rates are sharper than deposit rates.”

However, the appetite of investors in mutual fund schemes is waning. Investments in equity-oriented MF schemes fell 31 per cent month-on-month to Rs 6,120 crore in August, as per monthly data by the Association of Mutual Funds in India (Amfi).

This was the lowest monthly flow since October 2021 and only a third of the average monthly inflows received in the first eight months of 2022.
Inflows into equity MFs have eased amid a surge in volatility triggered by hawkish policies of global central banks from the peak of Rs 28,463 crore in March.

First published on: 03-10-2022 at 02:53:38 am
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